UK: Budget 2011 - Implications For The Investment Funds Sector

Last Updated: 1 April 2011
Article by Amanda Solomon

Modernisation of Investment Trust Companies ("ITCs")

Following previous consultation, the Finance Bill 2011 (the "Finance Bill") will include provisions modernising the tax rules for ITCs. The new ITC tax rules will:

  • include a new definition of an investment trust;
  • provide certainty on which transactions are treated as investments for tax purposes (this will include a "white list" of transactions);
  • permit a wider range of investment strategies;
  • reduce administrative burdens, including removal of the annual approval process; and
  • deal more flexibly with minor or inadvertent breaches of the rules.

Draft regulations for the new ITC regime will be published for consultation during April 2011.

UCITS Funds with UK Resident Fund Manager

With effect from the Royal Assent of the Finance Bill (expected in July 2011), undertakings for collective investment in transferable securities (UCITS) funds will not be treated as resident in the UK in cases where they otherwise might be UK resident by virtue of having a UK resident fund manager.

Tax Transparent Funds

In June 2011, the Government will consult concerning the establishment of a tax transparent fund vehicle to support the competitiveness of the UK fund industry following European regulatory changes in the Undertakings for Collective Investment in Transferable Securities (UCITS IV) Directive 2009/65/EC. It is intended that legislation be included in the Finance Bill 2012.

Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCTs")

As previously announced, for shares issued on or after 6 April 2011, the requirement that more than 50% of the qualifying trade must be carried on in the UK will be replaced with a requirement that the investee company has a permanent establishment in the UK.

Subject to State Aid approval, the rate of income tax relief given under the EIS will increase from 20% to 30% with effect from 6 April 2011. It should also be noted that any carry back of relief from 2011/12 to 2010/11 will only qualify for 20% relief.

Subject to State Aid approval, the following further significant changes will be made to both the EIS and VCTs rules with effect from 6 April 2012:

  • the conditions for an investee company to be a qualifying company will be relaxed:
    • the upper limit on the number of employees of the investee company will increase from 50 to 250 employees;
    • the upper limit on the level of gross assets immediately before the investment will increase from £7 million to £15 million (and the limit on the amount post-investment will be abolished);
  • the maximum amount that can be invested through both EIS and VCTs in an individual company will be increased from £2 million to £10 million; and
  • the annual amount that an individual can invest through an EIS will increase from £500,000 to £1 million.

The Government will consult on further changes to the schemes including proposals to give additional support through the EIS for seed investment.

Companies whose trade consists wholly or substantially of the receipt of feed-in tariffs (FITs) or similar subsidies will only be eligible for the two schemes where commercial electricity generation commences before 6 April 2012. However, shares issued before 23 March 2011 will not be affected.

Real Estate Investment Trusts ("REITs")

The Government will consult shortly about reducing barriers to entry and investment and reducing the regulatory burden for existing and future REITs with the intention of including legislation in the Finance Bill 2012.

Matters to be covered by the consultation will include:

  • abolishing the 2% conversion charge for companies joining the REIT regime;
  • relaxing the requirement for a UK REIT to be listed on a recognised stock exchange, which will encourage entry into the REITs regime, especially for start-up property investment companies (this would permit listing on AIM);
  • a diverse ownership rule for institutional investors which will enable them to set up UK REITs;
  • a fixed grace period for new REITs to meet the non close company requirement, which will enable start up UK REITs to build a sufficient reputation to attract shareholders; and
  • allowing cash to be a "good" asset for the purpose of the REIT balance of business asset test, which will allow UK REITs to make investment decisions on a commercial basis.

Reduction in Stamp Duty Land Tax ("SDLT") for multiple purchases of Residential Properties

In respect of property acquisitions whose effective date is on or after the date of the Royal Assent of the Finance Bill (expected in July 2011), a new SDLT relief will be available to purchasers of two or more residential properties. In particular, when the relief is claimed, the rate of SDLT will be computed by reference to the average consideration for each dwelling (instead of the total consideration), subject to a minimum rate of 1%.

This change is intended to strengthen demand for, and reduce a barrier to investment in, residential property.

Reform of Stamp Duty Reserve Tax ("SDRT") on Collective Investments Schemes

As previously announced, with effect from (or just after) the Royal Assent of the Finance Bill (expected in July 2011) there will be an expansion of the relief from the Schedule 19 SDRT charge for investments in certain underlying collective investment schemes.

UK Investments by Non-Domiciles

Changes will be made to the tax rules for non-domiciles with effect from April 2012:

  • no tax charge will arise when non-domiciles remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses (currently, a tax charge arises in these circumstances which is a disincentive to inward investment to the UK);
  • the existing £30,000 annual charge will be increased to £50,000 for non-domiciles who have been UK resident for 12 or more years and who wish to retain the benefit of the remittance basis (the £30,000 charge will be retained for those who have been resident for at least seven of the past nine years and fewer than 12 years); and
  • simplification of the rules to remove administrative burdens.

It is expected that there will be a consultation document on these measures in June 2011. The Government has also confirmed that there will be no other substantive changes to the non-domiciles tax rules for the remainder of the current Parliament.

Capital Gains Tax Entrepreneurs' Relief doubled

With effect from 6 April 2011, the lifetime limit on capital gains qualifying for entrepreneurs' relief will be doubled from £5 million to £10 million. Subject to conditions, this relief reduces the rate of tax to 10% on qualifying disposals of entrepreneurial businesses by individuals and certain trustees, with the excess taxed at the individual's marginal rate.

If before 6 April 2011, an individual has already reached the limit for entrepreneurs' relief, there will be no retrospective increase for disposals that were made before 6 April. Instead, the extra £5 million of relief will be available for future qualifying disposals.

There are no other changes to the rules or conditions relating to entrepreneurs' relief.

Corporation Tax cut

The main rate of corporation tax, currently 28%, will be reduced as follows:

  • for the financial year beginning 1 April 2011, the rate will be cut by 2% to 26%;
  • for the financial year beginning 1 April 2012, the rate will be cut by 1% to 25%;
  • for the financial year beginning 1 April 2013, the rate will be cut by 1% to 24%; and
  • for the financial year beginning 1 April 2014, the rate will be cut by 1% to 23%.

The ultimate rate of UK corporation tax will be the lowest in the G7.

The small profits rate of corporation tax, currently 21%, will be reduced to 20% for the financial year beginning 1 April 2011 (but is not expected to change thereafter).

Foreign Branches Profits Exemption

With effect for accounting periods commencing on or after the Royal Assent of the Finance Bill (expected in July 2011), UK resident companies will be able to elect for profits of all their foreign branches to be exempt from UK corporation tax.

Following consultation, the Chancellor has confirmed that life insurance companies will also be to benefit from this exemption.

Lower Taxes in Northern Ireland

The Government is consulting concerning introduction of lower corporation tax rates in Northern Ireland to respond to the Irish Republic's business tax regime.

50% Income Tax to be abolished

In his Budget speech, the Chancellor confirmed:

"I am clear that the 50 pence tax rate would do lasting damage to our economy if it were to become permanent. That is why I regard it as a temporary measure.... I've said before that now wouldn't be the right time to remove it, when we're asking others in our society on much lower incomes to make sacrifices. For we're all in this together."

Whilst no timescale for abolition has been indicated, the Chancellor has asked HM Revenue & Customs to monitor how much the 50% tax brings in. This information should give the Chancellor scope to replace 50% income tax with something less damaging to the UK economy but which raises a similar amount of tax.

Enterprise Zones established

Eleven new Enterprise Zones have been announced in England - in London, Birmingham / Solihull, Leeds, Liverpool, Greater Manchester, the Tees Valley, Tyneside, the Bristol area, the Black Country, Derbyshire / Nottinghamshire and Sheffield. Another ten Enterprise Zones in England will be announced in the Summer of 2010. There are also expected to be Enterprise Zones in Northern Ireland, Scotland and Wales after discussions with the respective devolved Governments.

Businesses in Enterprise Zones will obtain:

  • up to 100% discount on business rates for 5 years;
  • new superfast broadband; and
  • (for zones where there is a strong focus on manufacturing) enhanced capital allowances.

In return for radically reduced planning restrictions, local authorities will be allowed to keep all business rate growth in their Enterprise Zone for a period of at least 25 years to spend on development priorities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Mishcon de Reya
Smith & Williamson
Smith & Williamson
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Mishcon de Reya
Smith & Williamson
Smith & Williamson
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions